Park Aerospace Corp (PKE) 2013 Q3 法說會逐字稿

Good morning. My name is Derek and I'll be your conference operator for today's call. At this time, I would like to welcome everyone to the Park Electrochemical Corp. third-quarter fiscal-year 2013 earnings release conference call. (Operator Instructions). At this time, I will turn today's call over to Mr. Brian Shore, President and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, Operator.

Welcome, everybody, to our third-quarter conference call. I have with me Matt Farabaugh, our CFO, as usual. So Matt and I will start with some introductory remarks regarding the quarter and our business, and then we'll go into our normal Q&A session. So Matt, why don't you get us started with financial commentary?

Okay, very good. Thanks, Brian.

Certain statements we may make during the course of this discussion which do not relate to historical financial information may be deemed to constitute forward-looking statements. Any forward-looking statements are subject to various factors that could cause actual results to differ materially from our expectations. We have set forth in our most recent annual report on Form 10-K for the fiscal year ended February 26, 2012, various factors that could affect future results. Those factors are found in Item 1A and after Item 7 of that Form 10-K. Any forward-looking statements we may make are subject to those factors.

I would first like to summarize the financial information included in the news release for the third quarter ended November 25, 2012, and in some cases add a comparison to the second quarter of the 2013 fiscal year.

Net sales for the 2013 fiscal year third quarter ended November 25, 2012, were $41.3 million, compared to net sales of $47.3 million for the prior fiscal year's third quarter and compared to net sales of $46.4 million in the second quarter of the 2013 fiscal year. Park sales for the first nine months were $133.7 million, compared to sales of $149.6 million for the prior fiscal year's first nine months.

Net earnings before special items for the 2013 fiscal year third quarter were $5.1 million, compared to net earnings of $5.4 million for the prior fiscal year's third quarter and compared to net earnings before special items of $5.8 million in the second quarter of the 2013 fiscal year.

During the current year's third quarter, the Company recorded pretax charges of $600,000 in connection with the closure of its Nelco Technology (Zhuhai FTZ) Ltd. facility located in the Free Trade Zone in Zhuhai, China, and its Park Advanced Composite Materials, Inc., facility located in Waterbury, Connecticut.

Accordingly, net earnings were $4.7 million for the third quarter ended November 25, 2012.

Park's net earnings before special items for the first nine months were $15.8 million, compared to net earnings before special items of $19.2 million for the prior fiscal year's first nine months. The current year nine-month period include the pretax charges of $3.1 million, primarily related to be the facility closures mentioned above.

The prior fiscal year's nine-month period included other pretax income of $1.6 million related to the settlement of certain lawsuits. Accordingly, net earnings were $12.9 million for the nine-month period ended November 25, 2012, compared to $20.3 million for the nine-month period ended November 27, 2011.

Park's diluted earnings per share before special items were $0.25 for the 2013 fiscal year third quarter, compared to diluted earnings per share of $0.26 for the prior fiscal year's third quarter and diluted earnings per share before special items of $0.28 for the second quarter of the 2013 fiscal year.

Diluted earnings per share were $0.23 for the third quarter ended November 25, 2012. Park's diluted earnings per share before special items was $0.76 for the nine months ended November 25, 2012, compared to diluted earnings per share before special items of $0.93 for the prior fiscal year's nine-month period. Diluted earnings per share were $0.62 for the nine months ended November 25, 2012, compared to $0.98 for the nine months ended November 27, 2011.

Now I'd like to briefly review some of the other significant items in our third-quarter P&L. During the fiscal year 2013 third quarter, North American sales were 46% of total sales, European sales were 8% of total sales, and Asian sales were 46% of total sales, compared to 46%, 15%, and 39%, respectively, for the third quarter of the prior fiscal year and 42%, 9%, and 49%, respectively, for the second quarter of fiscal-year 2013.

Sales of Park's high-performance non-FR-4 printed circuit materials were 82% of total laminate and prepreg material sales in the third quarter of the fiscal year 2013, 79% in the third quarter of the prior fiscal year, and 82% in the second quarter of fiscal-year 2013.

Sales of Park's aerospace materials and parts were $5.5 million in the third quarter of the 2013 fiscal year, compared to $7 million in the third quarter of the prior fiscal year and compared to $5.8 million in the second quarter of the 2013 fiscal year.

Sales of aerospace materials and parts were $18.9 million for the first nine months of the current fiscal year, compared to $19.8 million for the prior year's comparable period. The gross profit percentage for the third quarter of 2013 was 30.4%, compared to 27.5% for the prior fiscal year third quarter and 28.4% in the second quarter of the 2013 fiscal year.

Selling, general, and administrative expenses were 15.4% of net sales for the 2013 fiscal year third quarter, compared to 14.8% for the prior year's third quarter and 14.2% in the second quarter of the 2013 fiscal year. Selling, general, and administrative expenses include net foreign exchange gains of $53,000 in the third quarter of fiscal-year 2013, and foreign exchange losses of $94,000 in the prior fiscal year third quarter, and $75,000 in the second quarter of fiscal-year 2013.

Prior -- Park reported earnings before income taxes and special items of $6.3 million for the third quarter ended November 25, 2012, compared to earnings before income taxes of $6.2 million for the prior fiscal year third quarter and earnings before income taxes and special items of $6.8 million in the second quarter of the 2013 fiscal year. Park recorded no special items during the 2012 fiscal year third quarter.

Investment income for the third quarter was $143,000, compared to $188,000 for the third quarter of the prior fiscal year and $179,000 in the second quarter of the 2013 fiscal year. As a result, pretax operating profit before special items was 15.3% of net sales for the 2013 year third quarter, compared to 13.1% for the prior fiscal year third quarter and 14.6% in the second quarter of the 2013 fiscal year. Pretax operating profit was 14.0% for the 2013 fiscal year third quarter.

The effective tax rate before special items was 19.1% for the 2013 fiscal year third quarter, compared to an effective tax rate of 13.1% for the prior fiscal year third quarter and 15.0% in the second quarter of the 2013 fiscal year. The effective tax rate for the fiscal year 2013 third quarter was 18.2%.

Turning to Park's balance sheet, cash and marketable securities were $273.5 million at November 25, 2012, compared to $268.8 million at the end of the prior fiscal year. Working capital was $301.7 million at the end of 2013 fiscal year -- third quarter, compared to $290.1 million at the end of the prior fiscal year.

During the current fiscal year's nine months, the Company had capital expenditures of $1.2 million and depreciation expense of $3.2 million, compared to capital expenditures of $3.4 million and depreciation expense of $4.3 million for the prior fiscal year's first nine-month period.

Stockholders' equity was $349.5 million at November 25, 2012, compared to $343.2 million at the end of the prior fiscal year. Finally, stockholders' equity per share at November 25, 2012, was $16.80, compared to $16.50 per share at the end of the prior fiscal year.

Thanks a lot, Matt. Appreciate it.

By the way, everybody, Matt and I are not in the same location right now, so we'll try to coordinate as best as we can. We've done this before, of course. And a couple of other -- just one other introductory comment, Matt's comments are posted -- a transcript of Matt's comments were posted on the Web early this morning and I just want you to be aware of that.

I have a question for you all, which you can let us know later on, if you want. I'm not suggesting you answer right now, but it's been at least raised that maybe some of you would rather not have Matt go through these comments at the beginning of the call since these comments are posted on the web, but let us know whether you like Matt to actually read the comments or whether you'd rather defer that for the conference call and just read them off the website. So if you have any opinion about that, feel free to let us know. Thank you.

So, let's see. Before we get into the quarter, I wanted to talk a little bit about the dividend declared yesterday so -- and put that in context a little bit because there is some additional commentary in the press release, which is a little unusual for a dividend news release for us, and I want to explain.

By the way, also, my comments might be a little bit longer today because we're covering a lot of territory here, so please bear with us.

So the dividend that was announced yesterday will probably end up being a return of capital rather than taxable -- it's actually a distribution which will be treated as a return of capital rather than as a taxable dividend. That's because our earnings -- our accumulated earnings and profits are now -- have been depleted with all the dividends that have been paid over the years. So at this point until that accumulated earnings and profits -- that's a US number, by the way -- go into the positive territory, all future distributions will be return of capital -- treated as a return of capital, rather than as taxable dividends, and that's important for you to understand.

We won't have a final word on that until at the end of the fiscal year when everything is kind of netted up because that's the point at which these questions are determined. But we're pretty sure that the last dividend and the one that was just declared yesterday, and even maybe some prior dividends of Park, will be return of capital.

Now, there's been a lot of questions for us and also a lot of discussion generally about large dividends being paid by other companies, special dividends, but I know some of you are wondering what we're doing because we have paid a lot of special dividends in the past. I think since 2005, 2006, I think we paid over $175 million in cash dividends, something like that.

It's a lot, and obviously that's mostly because of the special dividends. The regular dividend is only about $8 million a year at this point.

So there are these questions, and for most companies, the key date for a payment of a special dividend to avoid any tax increase in dividends would be December 31. So some people are wondering what happened to us. For us, that date is irrelevant. For us, any date for any kind of special action that would really be meaningful would be the end of the fiscal year, which is the end of February.

Why is that? Because any kind of payment, any kind of distribution that's a return of capital isn't taxable as a dividend. It reduces the basis in the stock. So it really doesn't matter. Even if capital gains go up next year, what we'd have to have done if we were going to declare a special distribution and pay it before the end of the year -- sorry, if we did that, if we paid it before the end of the year, in order to take advantage of the lower capital gains rates this year as compared to next year if they go up, the shareholder would have to sell its stock, all his stock, and that's not really realistic, especially considering the way our stock trades.

We were not going to make any decision about this until after the election because we felt the election could dramatically affect the landscape for taxes and tax treatment in the US.

Right now, we're still quite concerned about the fiscal cliff, so we're not making any decisions until we figure out whether we're going to go over that proverbial fiscal cliff, and we feel there's a lot of uncertainty as a result. I know a lot of people are just assuming that a deal will be made, but I think that's not necessarily a sure thing, you know, so I think we're going to sit tight and see what happens with the fiscal cliff.

But for us, if we did a distribution, a special distribution, the key date for us would be payment before the end of the fiscal year, and that's -- it's very complex why that is and I won't go into the explanation of that, but that distribution, if there was one, would be a return of capital; therefore, there would be no taxes paid on the distribution until such time as the stock was sold, and then there would be a capital gains tax to be paid. The special -- the return of capital distribution reduces the shareholders' basis in our stock. It does not -- there is no current taxable event unless their basis is less than the distribution, and then the extent to which it's less is capital gain at that time.

Now, obviously, you have to defer to your own taxes advisors. I'm no tax expert. Matt's a little bit of a tax expert, but we're not giving you tax advice. We're just trying to explain to you our thinking and the dynamics that are at play for Park right now.

The other thing I need to say -- I need to underline this, with lots of underline -- is we're just talking about our situation and our scenario. There's absolutely no assurance, no guarantee whatsoever that we're going to do anything in terms of a special distribution. I just want to make sure you understand that and you hear that loudly and clearly.

But like usual, we're very willing and happy to talk openly about our situation, so that's what we've done, but we're not predicting anything and not saying what we would do or not do. At this point, we don't know. We have not made a decision and we're not going to even consider this really seriously until we understand where we're going with this fiscal-cliff situation. Okay? That's nothing to do with this specific quarter, but I wanted to cover that for you because the news release yesterday with the dividend to try to address it, but I think it required a little bit more discussion so you understand the dynamics of that situation.

I also want to talk -- changing gears, I'm talking now -- I would like to talk a little bit about our business. I'm not going to focus on the quarter. I'll get to the quarter a little later on, so bear with me. There's a number of things I want to cover here.

I had a phone discussion with one of our largest shareholders, I guess a couple months ago or so. I don't remember exactly. It was a very useful discussion for me, a very informative discussion because the shareholder -- these are people I've known for a long time and I think I have quite a good relationship with them -- that's my opinion, anyway -- said some things to me which I was glad they said because I didn't think they were correct and it gave me an opportunity to think, boy, I ought the record corrected -- straight because other shareholders may be -- may have the same misunderstanding.

There is a comment about aerospace that, you know, we've been working in aerospace for seven years now or something like that, and we've lost money for seven years. And I really don't know where that concept came from and somehow something was said or whatever that was misunderstood, but that's not true. That's not the case.

In aerospace, we lost money for two years. We had an operating loss for two years in fiscal 2012 and probably in fiscal 2013, but that was part of the plan we discussed numerous times about while we were ramping up Kansas, while we continue to have these other operations in Connecticut and Washington, we are dealing with duplicate costs and also significant qualification costs to transfer business from Connecticut, in particular, to Kansas. So that's not really a surprise at all.

But of course, we did close our Washington operation, I think earlier this year. We closed our Waterbury operation in September. So the news is in the third quarter, aerospace had a positive operating profit. It was a positive profit from operations for aerospace in the third quarter. And that's consistent with what we've said all along, that when we close the Waterbury plant, it would be different.

Now it's not a big profit and we're not going to quantify it because we don't segment aerospace, so we've never quantified the losses or profits in aerospace or electronics separately. We haven't done that, but we have talked about the difficulty with aerospace with the start-up. Not that it was really something we didn't anticipate, but nevertheless it doesn't make it any easier going through it. There's been a lot of difficulty with the startup of aerospace, the startup of our Kansas operation in particular. But I just want to say again, as of this quarter, the quarter just ended, aerospace had a positive profit from operations.

So even though we probably will lose money in fiscal 2013, it's already turned positive and we expect it to be positive in Q4 as well. So we lost money in fiscal 2012. We probably will lose money in 2013, by the time everything is added up, but the third and fourth quarter of 2013 are positive. Not by any great degree; we're not declaring victory here, we're just reporting facts because I just really want to make sure you have the facts because there was this misunderstanding and I felt very badly about it. I'm sure the shareholder was sincere and I really appreciated them sharing this with me because I had no idea people were thinking these thoughts, that we lost money for five or seven years in aerospace. That's just not the facts. And I wanted you to be aware of it.

And this was really the plan. The one thing that didn't go according to plan is I think we were hoping and planning to close our Waterbury operation at the end of the last fiscal year, and it was about six months late, but we've explained that -- not that it's a good thing, but we've explained the reasons, anyway. And if we did a better job, I guess maybe it would have closed at the end of last fiscal year, but we were six months late with that.

But everything else that has happened is exactly, I think, what we said would happen, exactly. So it's not like things aren't going according to plan here. I must say on a day-to-day basis it can be quite difficult, but we should have expected that and we did expect it. So I just wanted to explain that I think it's real important that that be understood because obviously it was not understood.

Kansas, the plant, a long way to go, a real long way to go, but it's getting better. All the business is over in Kansas now. All the aerospace business is being handled in Kansas.

We also have upgraded the organization quite a bit. We have some very good talent in Kansas now, quite a bit different than even a year ago or even six months ago, some very nice talent in Kansas. So we're not there yet. Oh, my goodness, we have a long, long way to go. A long way to go, but things are, I think, going pretty well. When you pull back and look at it, you say things are going pretty well and things are really going according to plan, I would say, as well. Nothing really surprising there, and I think some good news and some very, very significant opportunities for us.

The other thing that I wanted to comment on is last conference call, the second-quarter conference call, I mentioned there were three opportunities that we were working on with aerospace and that they were significant in size and scale. They were $100 million, plus or minus $25 million; I think that was the comment we made. All right, and I said there were three opportunities.

This same shareholder said, well, you know, Brian, things aren't going well in Kansas and now you're going to throw more money after that to solve a problem in Kansas. I said, wait. Hold on a second. Let's first of all talk about Kansas, so we just discussed that, the reality in Kansas. But I said these $100 million opportunities have nothing to do with Kansas. They're so significant, they wouldn't be handled in Kansas.

There were three of them. One was an acquisition and we worked on that. It was an exclusive discussion for a couple of months. It was a very good company. We liked the management, but we just couldn't make the numbers work so we discontinued those discussions.

And I think that would be evidence of our discipline. We're not people who just throw big money after things. We think we have significant opportunities to invest in the future, but we're not going to do that irresponsibly and we're not going to do it wildly. So here's an example. We felt really good about the Company, the management, but we just couldn't make the numbers work so we ended the discussions. So that was one of the three. We crossed it off the list.

There were two other major joint ventures with aircraft OEMs. One program -- these are new aircraft programs -- one OEM informed us that they're putting off the development of aircraft for a couple of years for their own reasons, which is fine, and these would be aircraft with significant composite structure. And the third -- so that's the second one. That's, I guess you'd call, on hold maybe for a couple of years, anyway.

And the third one is still active. And this again relates to the development of a new aircraft which would have significant composite structure.

So, my comment is that these opportunities are so special, so unusual that I really should be fired if I didn't pursue these seriously and carefully because I wouldn't be doing my job for the Company. So I just wanted to put that in perspective for you. These are very, very special opportunities for Park.

And I think that the back story -- is that the term they use these days? -- is that the reason we're even talking about these opportunities, any of these discussions seriously, especially with the joint ventures, is because of all the work we've done in the last five, six years in aerospace. These companies are major companies, major companies, and it's not just the financial investment that we're interested in. They're interested in a partnership on these aircraft and these are significant components of the aircraft.

So this is the thing. If we went forward with one of these joint ventures and we were not able to deliver with fairly complex design capability and manufacturing capability, the OEM would be screwed because they would lose years and years, start all over again, and that's basically death for an aircraft OEM, to lose years and years.

So, the reason we're in the discussion, and these are exclusive discussions, is because of the fact that these OEMs obviously see capability in Park where we had no capability, really, six or seven years ago. So I would say that's probably a good sign.

Now maybe the [stored one] won't work, either; I don't know. But like I said, for me not to consider that seriously, you should call up somebody and have me fired right away because I would not be doing my job. I would not be doing my job. These opportunities are potentially so wonderful for Park that I would not be doing my job.

Now this last one may not come through, either. Obviously, we're going to use our same financial discipline. We're not going to just throw money after anything. It's going to have to work. The numbers are going to have to work. If they do, great; if not, we'll move on to something else.

I've mentioned also -- so that's the other thing I wanted to kind of correct the record on, and again, I want to say I really appreciated this investor making these comments to me because maybe I had no idea what people were thinking. And until he made those comments, I wasn't aware that there were these perceptions about what we were doing, which I just think are just not true. So I'm taking the opportunity to correct the record, in case anybody else is thinking the same thing out there. These things are -- these thoughts are just not correct.

I mentioned last time as well that we have an M&A program for aerospace, and that is ongoing. That's more of a kind of formal [discipline] program where we start with a specification, then go through the field, and you'd probably end up with about 2,000 companies and you narrow it down, narrow it down, narrow it down until you have a few, and then you approach them. So that's ongoing. I think I said that these other three opportunities were kind of all or nothing opportunities. We didn't want to do that and not look at more traditional M&A as well on the theory that maybe all three of them won't come to fruition and we'd be back to the drawing boards, so we're doing both at the same time.

Again, I just want to say that $100 million concept has nothing to do with Kansas, has nothing to do with making Kansas better. They're so large that these opportunities would have to be -- they would be somewhere other than Kansas, I'm quite sure.

Okay, so we talked about that, some of the background information about our Company. So I talked about those three situations, sorry, and also the M&A program. I'm just going through my notes, bear with me. I apologize again for the lengthy introductory comments.

So anyway, just to review a little bit more on aerospace, so about six, seven years ago we decided to invest in aerospace and make aerospace a major product line, a major emphasis for Park. And I would say that my opinion is it's very, very lucky and fortunate we did that. Six, seven years ago, this Company was making good money. We could have sat on our laurels, sat on our rear end and done nothing, went to play golf.

But we saw that aerospace -- sorry, we saw electronics was going to become more competitive and more difficult, and we were right. So we had the foresight and the guts to do something, which I think was very important for Park, because if we didn't do it then, if we were now, at this point, we're a single dimensional company with electronics only, it would really be too late.

If you look at my annual report, I commented on that, that we're very lucky to be in aerospace, but we had to make six-, seven-year investment to get to where we are now so that we could be considered seriously as a joint venture partner with a major OEM on a new aircraft program, for instance. And like I said, if we hadn't made that decision and made the commitment and had the conviction and the guts to carry it out, we would really be a company that would be a single dimensional company in electronics in a field that's become more and more competitive and more crowded.

So I just wanted you to know my perspective on aerospace, and how important and how wonderful a decision it was that we decided to go into aerospace in a major way, and how I think Park would be in a much more difficult situation if we had not done that.

Electronics, I think Park will continue to be able to do well in electronics, but we're never going to really own the high-end space again, which I think we did maybe eight, nine years ago. We owned that space; we were very dominant in that space. But we've attracted a lot of very significant competition. We saw our earnings profiles and margins as compared to theirs and realized we had a secret and they didn't, which is the high end, focus on the high end.

So we've attracted competition, serious competition, Panasonic, companies like Panasonic, Hitachi Chemical, even Rogers has gone into digital through a relationship with Hitachi Chemical. [Mysola], in my opinion, they've done a nice job of kind of reinventing themselves into a high-end company, a company focused on the high end. So these are all credible competitors. There are dozens of them that are no longer in existence, but the ones that remain are good competitors and they've come into our space, if you want to look at it that way. There are plenty of others I won't mention here, but there are plenty of credible companies we need to take seriously.

So I think that there's -- Park will continue to do well in electronics, but I'm glad that's not our only product line.

What do we have going for us in electronics with our two new products that came out about a year ago? -20, I think it's a very, very solid follow-on for our -13 product line, which was introduced in 1996. It's been around a long time. We're very happy about that. -22, my opinion, that's the best high-end product in the market today. That's my opinion and I have some reason to believe that, but those are good things, right? Even though we're in a competitive, crowded space, I think we have a lot to offer with our new products.

And what else do we have to offer? Park. Park has an attitude that we want to do everything we can to provide a customer with a wonderful experience. Sometimes we do, sometimes we don't. Sometimes we succeed, sometimes we fail. But that's really a special thing about Park is a desire to provide our customer with a very, very good experience.

So with those two things, with our product, our technology, our culture, I think Park can continue to do well in electronics. But like I said, I'm very glad that we had the foresight and maybe guts to decide to go into another market six, seven years ago when things were going very well and we could've sat on our laurels, on our rear end, and done nothing. That's my perspective, anyway.

Okay, so let's talk a little bit about the quarter, and I appreciate your patience in listening to my discussion about the Company and also the special dividend.

Q4, I know the analysts always want to know, how are we doing in the first three weeks? We have three weeks in the books in Q4; how are we doing? About the same as Q3, no real -- nothing interesting there. The trend continues as was the trend in Q3.

I also know the analysts want to know how Q3 worked in terms of quarter-over-quarter distribution. September was actually okay. September was -- the revenue in September was consistent with the revenue in Q2 on a weekly average basis, but October, November were very weak. Both October and November were very weak months. Why, I don't know, but my guess is that part of it, anyway, has to do with the global economy, concerns about elections, fiscal cliffs and debt crises and recessions in Europe. At least part, and that's my opinion, but the facts are that our business in electronics was slow and slower in October, November, and aerospace as well.

I think the problem with aerospace is that, especially with biz jets, there's a lot of nervousness based upon the political environment. The election didn't help that because it's well known that the current administration is not very friendly to biz jets. It's commonly known. I think it took a little while for people to get over that, but I don't think that was great news for the biz jet industry.

A couple of other points. Gross margins, as Matt pointed out, back over 30%, at least for now, and I think that's quite good considering the topline is way off, I would say.

What has contributed to that? Some of the things are what Matt said -- the closure of Waterbury, the closure of Zhuhai, but also aerospace improving quite a bit where it's now positive from an operating profit perspective. So those three things are quite significant in contributing to the gross margins jumping back over 30% when revenues are way off.

SG&A, a little higher than we'd like. A lot of what that is about is all the sampling activity for new products for electronics and aerospace.

And I just wanted you to note something. The pretax earnings before special items in Q3 were actually higher than they were in Q3 of the prior year, even though the revenues were $6 million less. So I just wanted to make sure you picked up on that. You can reach your own conclusions about that, of course. But that is a fact.

And I guess with all those introductory comments, again I appreciate you listening. Operator, why don't we go right into the questions and answers now?

(Operator Instructions). Sean Hannan, Needham & Company.

Yes, thank you. Good morning.

Good morning, Sean.

So first, if I can follow up on some of your commentary, Brian, around the advanced composite, the aerospace business there. The opportunity that remains active, can you give us a little bit more clarity around your thinking for timing of that? And how far along are you within that process?

You had commented there was an earlier opportunity you looked at where the numbers didn't work out. Are you at a point with this activity where you're able to be partially through the numbers? Any color around how we should interpret progress and expectations. Thanks.

No, I don't really have much of an update. These discussions have been ongoing for a while at the highest level, but I don't really have much of an update on whether the numbers are going to work or not. And obviously, when we have something, we'll let you know, but it would be premature at this point.

I guess my comments, Sean, were just based upon the scale and dimension of the opportunity, and there are other aspects of the opportunity, which I would be -- I won't go into because it would be highly in appropriate for me to do that, which would also point to the opportunity being of a very exciting potential opportunity for Park. And I'll say again, it may not pan out, but the opportunity for a lot of reasons is quite -- has quite a lot of potential.

Okay. All right, then to switch over to the electronics side, just to get a little bit more color from you, I think that geographically you certainly had some variations of performance, North America versus Asia. I'm not really as focused around Europe. I don't think that there's any surprise in terms of what's going on there. And it's obviously a much smaller piece of your business, but to get a better understanding -- or could you help us to get a better understanding of the decline that you saw in Asia quarter to quarter versus the activity you saw in North America?

Well, as you noted, Asia was the weakest market, relatively speaking, for us over the prior quarter.

You know, other than just stating that fact that you've already noted, I don't really know what else to say. It's hard to really understand the whys of that. Sometimes they don't make sense to us because we look at our market very much as a global market.

There has been some -- I don't want anybody to get too excited about this, but there has been some movement back to the US from Asia. That could be a temporary thing. There are a couple of special situations where business that was being sourced and manufactured in Asia came back the US, and I don't know if we should get excited about that, I mean, from an American perspective, like, wow, the US market is going to really start to grow. I wouldn't say it's a trend.

But there were some instances, as a general matter, where people are talking about maybe bringing a little bit of the business back, and there is a special situation or two where a large contract manufacturer moves some of its own business from Asia back to the US for maybe their own particular reasons that may or may not have anything to do with global trends.

So I don't know, Sean, you're probably more intelligent about that question than I am. The facts are noted and you're correct about the facts.

That color is helpful. Then in terms of the new products, you're certainly encouraged around the -20 and -22, particularly the -22. Just trying to get an understanding of where you are with customers at present with the kind of qualitative ramp for those products, number one, and then, number two, any perspective that you might be able to share around perhaps the customers' requirements to move to that next-generation material, and perhaps if there are any risks around the actual need to move to that next-generation material. There is sometimes some thoughts or speculation around extending the life and the usability of existing lines, and just wanted to get some perspective around that.

Well, those are real good questions, you know. It actually what happened with our -13. It's hung in there longer than when we might've thought of five years ago, just because of what you said. It's a major investment to upgrade technology and sometimes the OEMs want to squeeze as much out of the old technology as they can.

Our -20 product line is really a follow-on to -13. It's not a departure of product. It improved the electrical, to some extent improves the thermal's reliability to a significant extent. That's one of the weak points of -13. When it was first introduced, it was strong in that regard, but as technology advanced, -13 started to have an Achilles' heel in terms of some of its reliability properties, which are measured by different tests that I won't go into now.

So, you know, -20 is not an earthshaking new product that is a leading technology. -22, I made a comment and I believe this, I'm sure people disagree, that I think that's the best product in the high-end market at this time, but it's an interesting question you ask about the speed at which the new technology will be embraced. New technology is more expensive usually, at least it is at Park, and then the question is, are people going to try to squeeze out a couple of extra programs with the old technology or design around the new technology so they can still get what they want almost or get by with the old technology? But after the first of the year, we plan to go out with a more aggressive marketing campaign, I believe.

And we'll see what we get done.

At this point, there's been extensive sampling activity with both products. That's good news. That's what we want to see, and I commented that's one of the reasons our SG&A in a is a little higher than we'd like is because of all the sampling activity because we usually provide samples for qualification with no charge, and that goes through our sales line.

So I don't know the answer. Again, you're raising good questions. I guess the good news, I would say, is if you wanted to think long term, I feel quite good about -22 because it's clear the industry is moving in a direction of needing higher-speed materials. I don't think anybody would debate that. The question you're raising, which is a good one, is the timing for it, and will it go quickly? Will it go in little clumps? You know, will certain program switch over, some not? The timing will be interesting.

But from our end, of course we can't affect the world. We're a little company. We're not going to be able to affect what the world does. From our end, though, we intend to get out and market the product more aggressively and see what we get done.

Okay. Brian, thank you very much for all of the color.

You're welcome.

(Operator Instructions). Jiwon Lee, Sidoti & Company.

Thank you and good morning.

Good morning, Jiwon. How are you today?

Very well, thank you. Brian, I just wanted to kind of circle back on the aerospace components again. The joint venture opportunities that you have, those are, I believe, targeting new OEM programs, so how far are we, roughly, from at least any initial introduction of these OEM programs, as far as you can see?

Well, let me just talk generally about aircraft development. I don't really think we should get into anything specific about either of these two programs that we were trying to joint venture on. One, as I said, has been deferred for two years, anyway.

But normally, you would expect about five years from the point at which a program is designated a go program -- that means there's a commitment to develop and introduce an aircraft -- until they get the -- until the aircraft is certified and you have your first sale. At that point, the revenue would spike up because these programs usually are very well known. The OEMs start selling these aircraft in anticipation of the certification date.

You know, the key thing for us is to partner with OEMs who have very good track records, and they vary, you know. Some OEMs have done terrible jobs. I mean, these programs get to be hundreds of millions of dollars over budget, years and years and years late, and some of those OEMs don't do too well. They maybe don't last.

Some OEMs have very excellent track records of getting programs done on budget and on time. Obviously, we'd rather go with the latter. But when I say five years, that's assuming that the OEM is doing a good job of executing. That's not a late program; that's -- a clean sheet program would normally take five years.

So for a company like Park, if you're just looking at the revenue, there would be some revenue for prototypes during that period, but most -- but not -- but the real revenue would be, like, you're five -- you're 25 or you're 35, probably, often in many cases. So when we look at these kind of programs, we do a very careful return on investment, discount the investment as well as the return, and the numbers are going to speak for themselves.

But the one thing I guess I'm trying to convey is that both these programs are quite significant in scale for Park.

Are there any prototyping activities going on with any of these programs right now?

No.

Okay, it's a little early. Okay, and (multiple speakers)

If there were, then we probably would've announced it because that would mean that the program was -- that we had formed a joint venture.

Okay. And just switching gears onto the PCB side, that level of revenue was quite deep, especially since your commentary on the September order trends last quarter. So wonder whether this is purely on the demand side or whether, perhaps, you are sort of kind of resetting at least the PCB side of the revenue expectation.

Can you ask that question again? I'm not sure -- I understood the first part. There were two choices, one the demand side. What was the second option?

You sort of perhaps -- let's just put it simply. Are you sort of, perhaps, letting go of some businesses in pursuit of the composites or the profits or the competition? You have certainly done that in the past.

Yes, so market share. I think there's probably a market share element, but I can't tell you it's something that would have been a factor in the third quarter. I think that's been something which has happened over a long period of time.

I mean, for one thing, Matt talks about high performance. We have very, very little Ford business left, so we've lost a lot of market share off of Ford and I think that was a good decision.

We also have had a little bit of a gap. I think we're kind of at what's called a nadir right now because our existing product line in electronics, which I think is a good product line, but it's a mature product line and then new products haven't legged in yet. So there's a little bit of a kind of gap where the existing product line is not going to see a lot of upside. I think it's still a good product, but it's mature so it's not going to see a lot of upside. The upside will come with the new products, but I think we're kind of in between right now a little bit, and that's affecting our revenues as well.

So if we could go back and plant it over again, you would say we should've introduced these new products a couple of years ago, a couple of years earlier, and that probably would have been the right decision.

But that didn't happen, for a lot of reasons. One of them was -- maybe we touched on it a little bit -- is that we're a small Company and our focus has been, to some extent, on aerospace because with a new market like that, you really have to -- for us, we had to give it our all. If we just did a half-baked effort, it would have been worth nothing, so we had to give it enough effort to kind of break through and become a somebody, if you will. Go from a nobody to a somebody, and if we did anything less than that, the whole effort would've been wasted. It wouldn't have been a percentage thing; we would've wasted the whole effort.

So that probably affected our timing of introducing new products, just from a company-focus perspective. But we're talking [definitely] to them, just thinking out loud here. We're saying, well, maybe it's too early. Maybe it isn't late. Maybe it's too early. So I don't know.

But right now, I think your observation is correct that our existing product line is mature and our new products haven't legged in yet, so we're kind of in between a little bit in terms of our revenues. Again, I want to say that I have no idea whether that's a factor in the third quarter, though. I'm not saying that it is and I don't know that it is.

Okay, that's helpful. Thanks. And where there any share buybacks during the quarter?

Matt -- very, very little. I think right after we announced it, that is the buyback, we got into a blackout period. Matt, do you have the number? It's very small. I don't --

Yes, it was less than 4,000 shares that we were able to pick up (multiple speakers)

I think we got in the market for a couple days, and then we had us get out for certain reasons. Then we got into the blackout, so we never got very far.

Then lastly, for Matt, if we could discuss the top five, 10, and 20, please.

Sure. We had two customers that were more than 10% customers, TTM and Sanmina. Rounding out the top five was [whooze], Viasystems, and [EC] Petasys. The top five made up 50% of our total sales. The top 10 made up 60 -- just about 67% of our total sales. And the top 20 made up about 77% of our total sales.

Perfect, that's all for me. Thank you very much.

Okay.

Morris Ajzenman, Griffin Securities.

Hi, guys.

Hi, Morris.

The question, kind of a follow-up, kind of alluding that you were kind of late in introducing new products, specifically on the electronics side. Any comment, any thoughts to where you might be during the interim losing market share?

Well, that's what we've been talking about. I think we've lost a lot of market share with the lower-end product, the FR-4, and if you look at the market for high end, what, 70 years ago, we were very dominant in that market, and a lot of companies have come into the market.

Now, the market has grown as well, so our market share has gone down over the last seven or eight years, but the market has grown. And I don't think that's a result of the timing of our new products. As I commented, one of our new products might be early, rather than late. It's just a reality that we have some significant and serious companies that have come into this high-end market.

So I don't know what we could've done to prevent them from coming into the market. I don't think that Park would've been in a position to prevent that, so the loss of market share, I think, was going to happen.

For me, the question is, do we have a future in electronics? I think we do. I think we can continue to be successful in electronics. We're going to have to work harder because we have some serious competitors, and again, we have to work harder with having very good and maybe even the best products. And also, we have to have a relationship with our customers and service to our customers that leads them to want to do business with us maybe more than Brand X.

Thank you.

You're welcome.

At this time, I'm showing no further questions in queue. I would like to turn the call back over to Mr. Brian Shore for closing remarks.

Thank you very much, Operator. Thank you all for listening. I appreciate it. Thank you for indulging me with the comments about our business in general, rather than just the third quarter. I appreciate it. I thought those comments had to be made.

And the only other order of business for today is I want to wish you all a very Merry Christmas, Happy Hanukkah, happy holidays, and I wish you all the very best of luck in 2013. Please give us a call if you have any questions, and we'll talk to you soon. Good day.

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.